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Increased benefits 'help poor more'

Increasing benefits for low income workers would be a cheaper and more effective way of helping struggling families than tax cuts floated by the major parties, research has found.

The poorest families need an extra £80 a month to reach a level of income that is considered acceptable by the public, according to the Joseph Rowntree Foundation (JRF).

Meeting the shortfall through t ax reforms mooted by Labour, the Liberal Democrats and the Conservatives for after the next election would cost around £11 billion - at least three times as much as targeted support, its study shows.

Instead of widely drawn income tax changes, in-work benefits should be increased or reformed to allow employees to keep hold of more money, it recommends.

Long term, however, wages must be pushed up to stop low-paid workers, who are now more reliant on the state to top up their pay than ever before, struggling to make ends meet.

Chris Goulden, head of poverty research at JRF, said: "As the living standards election approaches, the main parties have set out their tax pledges. While they will have some benefit, they will cost the public purse at least three times as much as more targeted policies and fail to help families in greatest need.

"The Government has topped up the income of low earning families since 1971. This support is particularly crucial in periods where wages are stagnant and the cost of living rising, as has been the case in recent years.

"Wage levels and tax cuts are part of the mix for improving the living standard of low income working families, but how the state supports low earning families is also pivotal. This underlines the importance of Universal Credit in making work pay, as part of a comprehensive anti-poverty strategy."

The minimum income standard - based on the surveys of what is deemed a socially-acceptable standard of living - f or a couple with two children working full time is £740 a week, according to the JRF.

The Wages, Taxes and Top-ups report found that Coalition increases in the income tax allowance would have to hit £12,500 to make families £20 a week better off, but such a move would cost at least £11.5 billion.

It also showed that Labour's plans to re-introduce a 10p tax would be worth the same to household and cost a similar amount if a s tarting rate tax band of £5,200 was set.

But the benefits of either policy would not be fully felt by the lowest paid because under Universal Credit, the new benefits being rolled out, for every £1 gained through a tax cut, a family would lose 65p in their entitlement. That means that three times as much would have to be spent of the major parties' tax plans to deliver a £20 a week boost, the report said.

Allowing tax credits and Universal Credit to rise with inflation would mean an additional £10 a week for each of the 7.7 million children in families claiming the top ups at a cost of around £3.8 billion a year, it found.

Hiking up the amount of earnings disregarded for the benefits for working families and indexing childcare subsidies in line with actual fees would also help meet the shortfall, the report said.

Donald Hirsch, the report author, said: "Ensuring a decent living standard for working families requires a range of approaches. In the longer term, better pay is essential but state support for families on modest earnings will also be needed to help make ends meet - particularly with childcare costs. Cuts in this support hit working families hard: income tax cuts help to offset this but only weakly, because help is spread so thinly.

"Universal Credit shows the Government still believes in giving a boost to working families' earnings. The final levels of support in UC will be crucial in determining whether those on low incomes have the opportunity to truly benefit from economic recovery."

A Treasury spokesman said: "The best way to help those in the most need is to have a strong economy that creates jobs, and a tax and welfare system that helps people into work and makes work pay.

"The Government's long-term economic plan is doing exactly that - the increase to the tax-free personal allowance to £10,500 will lift over three million people on the lowest incomes out of paying income tax altogether and will mean that someone working full-time on the minimum wage will see their income tax bill cut by over two-thirds."

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